Question

8 1.net income Frannie Fans currently manufactures ceiling fans that include remotes to operate them. The current cost to manufacture 10.100 remotes is as follows: COM Direot materials Direct labor 55,550 Va ille Veskel 30,300 Fixed Verhand Total $ 202,000 Frannie is approached by Lincoln Company which offers to make the remotes for $18 per unit. Required: 2. Compute the difference in cost between making and buying the remotes If $20,200 of the fixed costs can be avoided. What is the change in net income? 3. What is the change in net income if fixed cost of $20.200 can be avoided and Frannie could rent out the factory space no longer in use for $20,200? Compute the difference in cost between making and buying the remotes if none of the fixed costs can be avoided. What is the change in net income? per unit Difference in cost Change in net income Compute the difference in cost between making and buying the remotes if $20,200 of the fixed costs can be avoided. What is the change in net income? per unit Difference in cost Change in net income What is the change in net income if fixed cost of $20,200 can be avoided and Frannie could rent out the factory space no longer in use for $20,200? Change in net income

Answer 1

Answer 1)

Difference in Cost per unit = Difference in Cost / Number of Units = $ 30300 / 10100 = $3

The difference in net income = Decrease by $ 30300

Difference in Cost = Total cost for Buy the parts - Total cost for Make the parts = $ 181800 - $151500 = $ 30300

If Frannie Fans buy the parts , then the cost will increase for an amount of $30300. So the net income will decrease by $ 30300

Calculations:

Statement of Comparative Cost

Buy the parts	Amount	Make the parts	Amount
Purchase Cost (10100 * 18)	181800	Direct material	65650
		Direct Labor	55550
		Variable manufacturing overheads	30300
Total cost	$181800	Total cost	$151500

Answer 2 )

Difference in Cost per unit = Difference in Cost / Number of Units = $ 10100 ​​​​​​​ / 10100 = $1

The difference in net income = Decrease by $ 10100

Difference in Cost = Total cost for Buy the parts - Total cost for Make the parts = $ 181800 - $171700 = $ 10100

If Frannie Fans buy the parts , then the cost will increase for an amount of $10100. So the net income will decrease by $ 10100

Calculations:

Statement of Comparative Cost

Buy the parts	Amount	Make the parts	Amount
Purchase Cost (10100 * 18)	181800	Direct material	65650
		Direct Labor	55550
		Variable manufacturing overheads	30300
		Fixed Cost	20200
Total cost	$181800	Total cost	$171700

Answer 3 ) Difference in Cost and change in net income

Difference in Cost per unit = Difference in Cost / Number of Units = - $ 10100 ​​​​​​​ / 10100 = - $1

The difference in net income = Increase by $ 10100

Difference in Cost = Total cost for Buy the parts - Total cost for Make the parts = $ 161600 - $171700 = ($ 10100)

If Frannie Fans buy the parts , then the cost will decrease for an amount of $10100. So the net income will increase by $ 10100

Calculations:

Statement of Comparative Cost

Buy the parts	Amount	Make the parts	Amount
Purchase Cost (10100 * 18)	181800	Direct material	65650
Savings	(20200)	Direct Labor	55550
		Variable manufacturing overheads	30300
		Fixed Cost	20200
Total cost	$161600	Total cost	$171700

Rental income from factory  is the savings , therefore it should be deducted from the amount of purchase cost.If the parts not make in factory , then the factory can letout for an amount of $ 20200.

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